March 3, 2023

The US stock market pulled back in February after hotter than expected inflation readings and stubbornly robust economic indicators renewed expectations for additional rate hikes, sending bond yields higher. In addition, Q4 2022 earnings came in with lower than average beats on already downwardly-revised estimates.  The S&P 500 index declined 2.4% for the month.  Energy (-7.1%), Real Estate (-5.9%), and Utilities (-5.9%) were the worst performing sectors in February, while Information Technology (+0.4%) was the sole sector registering a gain.  From a style perspective, growth was better than value across all market-cap ranges as bond proxies hurt the value sector as rates moved higher.  Small-cap stocks performed slightly better than mid-and large-cap stocks during February.

We continue to expect stock market volatility and we will be looking for evidence of investor capitulation upon acceptance of reality regarding the economic and earnings outlook for the year ahead.  Amidst disappointing profits, should they happen, we would expect your portfolio with its heavy concentration of higher quality, durable growth stocks should hold up better than the passive alternatives.  In addition, we have cash reserves and continue to wait patiently for what we feel will be better opportunities.